For industry and market sentiment to turn positive, easing liquidity concerns is crucial,said, Seshagiri Rao, Jt MD & Group CFO, JSW Steel.
According to him rate cut will boost liquidity infusion into the market and this in turn would increase consumption and stimulate investment.
Speaking to CNBC-TV18 Rao said, "Interest rate cut is very essential for the industry to look up."
Below is the verbatim transcript of his interview on CNBC-TV18
Q: Will rate cuts really make a difference? Are not your problems elsewhere in the dollar as well as in policy not moving whether it is mining or whether it is manufacturing?
A: Rate cut is a very important element at least to bring some positive sentiment in the market. For personal loans, housing loans and for infrastructure which are very rate sensitive sectors, it is essential that the rate will be adjusted and liquidity is improved in the market. That is the need of the hour.
Maybe Reserve Bank of India (RBI) is focusing more on inflation control than the growth stimulation. That is why the policy is more biased towards inflation control than stimulating growth.
In my view rate cut will have a very positive impact as far as the industry is concerned. Today the major issue which we are seeing is there is no pricing power in the manufacturing sector and there is absolutely no growth momentum at all for any sector.
In my view, rate cut will definitely give positive signals in addition to bringing in more liquidity in the market. Even though in absolute number, the amount the banks are borrowing under the repo window has come down. However, for the industry, there is a huge amount of tight liquidity conditions in the market, which is restraining the companies to have the working capital cycle in the normal way. Every company is looking for additional working capital today. That is the major problem we are seeing in the marketplace.
Q: Assuming there is a 50 bps rate cut do you think this year we will be able to generate a much better growth than last year? Either you want to talk in terms of revenue growth for India Inc. or in terms of GDP, how much better than last year?
A; One way of looking at it is that because the policy initiatives are not happening at the pace at which the growth momentum can pick up, therefore there is no need for RBI to look at rate cut or injection of more liquidity.
However, according to me rate cut and liquidity injection into the market can bring in more consumption and stimulate investments. Today because the manufacturing sector is not doing well; service sector is not doing well, which in turn is leading to job losses, the fear of job loss, and so we are seeing reduction in the consumption in market place. So, there is a need for stimulating this consumption which indirectly brings the investments into the market.
There may not be a direct correlation in reduction of interest rate and growth in investment because there are several factors which influence the investments. However, reduction in interest rate and injecting liquidity are a contributing factor as far as investments are concerned. Most of the industry is suffering due to lack of liquidity in the marketplace.
The banks’ borrowing from RBI under repo window is not the index of what the liquidity conditions are in the marketplace. Therefore there is enough liquidity to be provided in the market and interest rate cut is very essential for the industry to look up.